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Should you consider a QTIP trust for your spouse and children?

On Behalf of | Mar 6, 2021 | Wills And Trusts |

There are all sorts of blended families these days. Unfortunately, not all of them are smoothly blended. Perhaps your current spouse and your adult children from your previous marriage can get along well enough to spend a relatively peaceful holiday together. But what will happen after you die?

There have been numerous high-profile instances of stepparents and stepchildren fighting over the estate of a loved one after they’re gone. Of course, it also happens in families who aren’t in the public eye. Fortunately, there’s an estate planning tool you can use that will help prevent that from happening to your family.

How does a QTIP trust work?

A qualified terminable interest property (QTIP) trust allows a grantor (the person establishing the trust) to provide income for their surviving spouse, free of estate taxes, for the rest of their spouse’s life. The remainder is then divided as the grantor designates among their children and/or other beneficiaries after that spouse dies. At that point, estate taxes will be levied if the amount is large enough.

The trust is overseen by one or more trustees who have the responsibility of managing the funds and making regular payments to the surviving spouse until they pass away. Usually, those payments are made from the income generated by the trust, so the principal stays intact. However, a grantor can designate that part of the principal go to the spouse.

These trusts provide protection for children and other beneficiaries because the surviving spouse cannot just assume control over the trust or drain it of its assets. They also cannot change the designated beneficiaries to a subsequent spouse or their own children. However, a QTIP trust also provides protection to the widowed spouse because it’s clearly set up to support them.

When a QTIP trust may not be right for your family

A QTIP trust isn’t necessarily the best solution for every family. For example, if your spouse is considerably younger than you, it could be decades before your children or other beneficiaries see any money from it. Your spouse may even outlive them.

Fortunately, there are other types of spousal trusts and other estate planning tools that can help you ensure that your wishes for the people and organizations you care about are carried out after you’re gone. Your estate planning attorney can help you find the right tools for your needs.

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